regressive tax

regressive tax

Tax levied at a rate that decreases as its base increases. Regressivity is considered undesirable because poorer people pay a greater percentage of their income in tax than wealthier people. Consumption taxes and sales taxes are usually considered regressive because of their set rate structures. Tobacco, gasoline, and liquor sales taxes, all major sources of tax revenue, are the most regressive taxes. In an effort to limit regressivity, a number of U.S. states have exempted medicine and grocery items from sales tax. Although the property tax is sometimes judged regressive because poorer people spend a larger percentage of their income on housing than wealthier people, property taxes are nonetheless effective in redistributing wealth from higher to lower income groups. See also progressive tax.